Wise Power: How an aging Japan can maintain influence

Japan is in the grip of demographic forces that threaten its future. A plunging birth rate and increasingly long-lived citizens are transforming Japan into the grayest country in the world. Most analysis, including our own, has focused on the negative implications of this trajectory and with good reason: They are alarming. Less studied are the opportunities afforded a graying Japan. Seizing those opportunities requires creativity, innovation, and a long-range approach—none of which, quite frankly, are evident today.

The elderly share of the Japanese population—age 65 and older—already tops 21 percent and will climb to about 39 percent by 2050. Meanwhile, the birth rate has dropped below replacement and the population is declining: It's projected to shrink nearly 30 percent, to 89 million people, by 2055. These twin forces are a vise grip on the economy. The number of working-age citizens is falling, robbing the economy of its dynamism, cutting GDP growth, eviscerating savings, depriving the government of tax revenues, and forcing increasingly difficult choices on budget planners. An aging Japan will be more inward-looking, focused on domestic issues and increasingly risk averse (that is saying something for a country already as risk averse as Japan). Defense spending and foreign policy are likely to get shortchanged as priorities are reassessed. This has profound implications for Japan and the United States, its ally and partner, as well as the region.

Seizing the Moment

By most measures of national power—population, economic dynamism, defense budgets, military strength, foreign aid—Japan will be getting weaker. In fact, downward trends are already evident in every index. But there are areas in which Japan could use those trends to its advantage. Each involves "soft power," and could provide international status and influence for a country that is losing leverage by most indices of power and influence.

Gray is the New Green

An older Japan is likely to be a better steward of the environment. A shrinking Japanese population should reduce its "footprint" on the planet: fewer people consume fewer things. The Japan Atomic Energy Agency estimates the country's population in 2100 will plunge to 64.07 million people, and anticipates domestic energy consumption would shrink 42 percent below the level of 2000, driven by the falling population and energy-conservation efforts.

Studies also show that the elderly as a whole consume fewer resources than do other age cohorts. Consumption may increase, but that tends to be consumption of services, not goods. Older populations are less mobile, cutting transportation costs. Depopulation is likely to encourage more people to move to cities, encouraging more efficient utilization of resources as population density increases and dispersion of individuals is reduced.

These trends are likely to reinforce the "green" predilection that exists among Japanese. Surveys show the Japanese are proud of their environmental record and like to think they have a special affinity with nature. A longer lifespan should encourage Japanese to make environmental protection an even higher priority—they will be around longer to enjoy the green. Japanese policymakers should exploit this shift. Japan has one of the most energy-efficient economies and a strong record of promoting sustainable development (having learned its lessons in the 1960s). Japan should be leading by example as environmental issues move to the top of the global agenda.

First among Equals

Most developing countries are following Japan's demographic trajectory; Japan is merely facing these challenges first. If the country can successfully navigate this transition, it can become a model for others. In many ways, Japan is better suited than many other countries to adapt to these conditions. The savings rate has historically been high (although it is declining), which means that there are funds to meet retirement needs. Social mores favor the elderly and there is a presumption of generational care for the aged. The population is relatively dense and there is a good mass transportation system. Moreover, the Japanese are fond of grand, sweeping plans, and developing a model for aging societies could provide a mobilizing force for the country. Of course, every society is different and each will have to fashion a response to its demographic shift that is best suited to its particular circumstances. But policy frameworks and technological responses can be copied and adapted—and getting in front of this demographic curve will create new opportunities for a country in search of new economic drivers.

Slaying the Demons of History

Japan's history of imperialism continues to throw a long shadow over Tokyo's foreign relations. While fears of remilitarism are unfounded, doubts remain about Japanese intentions in the region. In some cases, fears are whipped up by political opportunists in neighboring countries, but exaggerations are credible only if there is soil for them to take root. A graying, aging Japan, unable to fund or staff its military, can no longer constitute a threat—real or imagined—to its neighbors. Demographic change may finally put that bogeyman to rest, eliminating an excuse that countries use to beef up their own militaries.

Fears of remilitarism have also obscured Japanese contributions to regional peace and security during the last 60-plus years. Of course, limiting defense spending and sticking to the constraints imposed by Article 9 of the Constitution are in Japan's interest, but too little attention has been paid to Tokyo's restraint. Article 9 is a striking declaration of the desire to chart a new course—it renounces the use of war as an instrument of national policy. Yet when Article 9 is discussed, it is as "an obstacle"—blocking remilitarization—rather than as a positive statement. Japan deserves more credit. The loss of the militarist specter should shift the terms of discussion and provide the country with more soft power.

Reinvigorating Regionalism

There are many reasons for Asia's stunted regionalism but prime among them is Japan's troubled relations with China and South Korea. Absent constructive, forward-looking relationships among Tokyo, Beijing, and Seoul, there is little chance of forging effective regional institutions in East Asia. Territorial disputes, economic competition, divergent interpretations of history, power rivalries, and opportunistic politicians have created considerable tensions, ensuring that cooperation is doubly difficult and institutional ties slow to emerge. Japan's transformation will take the sting from those points of contention and could help drain tensions in Northeast Asia.

But there is more to this process than just the removal of obstacles to cooperation. A country with diminished resources at its disposal will be more inclined to reach out for help in dealing with shared problems. And the countries of Northeast Asia are, for all their differences, quite similar. Japan, South Korea, and China are advanced industrial societies, with many cultural convergences. They confront the same trends and pressures, such as nationalism, aging, and a generational transition. Geographic proximity means that they are equally affected by problems such as sea lane security, environmental degradation, or instability in North Korea. There is every reason for these countries to work together to solve future challenges. Japanese efforts to drive this process, to promote norms and build institutions, will also boost the country's soft power. Moreover, Japan's deep integration into the region will give it a mechanism to exert more influence in Asian affairs.

Unsurprisingly, Japanese industrial strategists have concluded that deeper integration with neighbors is the most compelling solution to Japan's lagging dynamism. That process is well underway. China became Japan's top trade partner in 2007, taking 20.6 percent of Japan's total imports and 15.3 percent of Japanese exports. Exports to China drove Japan's economic recovery of this decade (before the global crisis hit). Chinese figures show that from 1979 to 2007 Japan was the second largest source of non-overseas-Chinese foreign direct investment (particularly Hong Kong and Taiwan), with cumulative FDI of $61.2 billion.

Some worry that a functional and coherent Asian community will threaten U.S. interests in the region. For them, Asian regionalism is a device to diminish American influence in this vital region, or perhaps even exclude it altogether. We believe this is an exaggerated fear, and not because we're skeptical about the prospects for Asian community building. Rather, stronger regional institutions are needed to tackle the myriad challenges of the future. The United States must have faith in Japan that it will protect their partnership even when the United States isn't in the room. This is one manifestation of the new burden sharing within the U.S.-Japan alliance that will be created by the changes within Japan.

Rethinking the Alliance

Japan's demographic transformation could also transform its relationship with the United States. The U.S.-Japan alliance has been the cornerstone of U.S. engagement with Asia. It survived the end of the Cold War and successfully reinvigorated itself as other U.S. alliances have struggled to find purpose in a post-Soviet world. But the terms of the post-Cold War redefinition—Japan assuming a higher international security profile—are untenable as the country ages. We believe the world has witnessed the high-water mark of Japan's international security role—at least when security is defined in traditional terms.

The demand to "show the flag" or "put boots on the ground" will fall on increasingly deaf ears. That isn't necessarily a bad thing. Washington's call for Japan to dispatch forces overseas has put the United States at the heart of a bitter domestic debate about the military, the constitution, and Japan's international role and politicized the alliance. The alliance will be on much more solid ground when it is the means to an end agreed upon by all Japanese rather than a club to beat dissenters into submission in domestic political debates.

But if Japan has less it can contribute to the alliance as traditionally configured, then it has to come up with more creative things it can do, in particular the provision of regional public goods. This should raise the bar for Japan. Alliance discussions should focus on nonmilitary contributions by Tokyo. That makes sense at a time when the very nature of security is changing. There are still instances of conflict between states, but many of the most pressing security threats are transnational, such as the proliferation of weapons of mass destruction, terrorism, piracy, international criminal groups, and the like. Ironically, Japan has long championed the notion of "comprehensive security," which corresponds closely to this new outlook.

To tackle these challenges, Japan can provide experienced individuals, know-how for economic development and technical capacity building, as well as set standards for responsible international citizenship. Japan can show leadership by reinvigorating international trade negotiations at the global and regional levels. This requires a break from the past—Japanese negotiators have focused on protecting domestic industries rather than promoting global liberalization—but if motivated, Japan could be a positive force for change.

As Tokyo works to ensure that more countries have the opportunity to share the prosperity created by trade and development, Japan also should strengthen trade and product safety standards. In a globalized economy, no issue is more important: First, every link in the global production chain must be secure and cannot be compromised. Second, consumers must have confidence that the products they are buying are safe.

Finally, Japan can do more to help the United States protect the homeland. Take, for instance, cybersecurity or critical infrastructure protection. There is growing concern about the vulnerability of computer networks that are central to the functioning of a modern economy or the defense establishments. Few countries can match Japan's capabilities in this vital sector. More importantly, working on these threats should sidestep the objections raised by Article 9 supporters: Securing computer networks is a long way from the use of war as an instrument of national policy.

This is the sort of creative thinking that Japan must embrace as it grapples with the effects of its demographic transition. We have faith, if nothing else because with old age comes wisdom.

Tomoko Tsunoda is a former Vasey Fellow at Pacific Forum CSIS, a Honolulu-based think tank where Brad Glosserman is executive director.